Do You Really Need a Financial Advisor?
You opened a 401(k). You have some insurance. Do you need a financial advisor?
With graduation season nearly here, lots of college seniors are about to make the transition from student to young professional. Hopefully you've already landed that first paying gig. Or maybe you finished school a few years ago and are feeling pretty well settled into life. You've started your 401(k) at work, you're in control of your student loan payments, maybe you've even bought your first house, so you don't have the pressure of saving for a down payment. Do you really need a financial advisor?
Yes. You do. Take it from me - 18 months ago, I was that guy who thought he had it all figured out. I thought I knew everything about money management and that I was good to go. Like a lot of young professionals, after I landed my first job, I started thinking about getting my finances in order. I set up a retirement account and dove head-first into paying off my student loans. Debt is bad, right?
When I first joined the team at Family Financial Partners, I was still in that mindset that I knew it all. Well, turns out, I didn't know anything. I started seeing that some of the things I had done in my own financial life, while not necessarily bad, were inefficient. I was focused on those loans, and neglecting the savings aspect of my finances. The thing is, those loans weren't really hurting me. The interest was low, and tax-deductible, effectively making it even lower. It would have been more efficient to max out a Roth than it was to focus solely on student debt.
Another common inefficiency I was committing was letting my 401(k) default to the target date fund. Again, this isn't bad, per se. Target dates work to an extent, basing the portfolio on the person's age, but they don't take your specific goals into account. If you're that unicorn who perfectly fits the target date timeline, great. But chances are, you're not. Most people can benefit from tailoring their portfolio to their own specific goals and financial situation.
That first benefits package can also be confusing for new professionals, especially when it comes to the life insurance portion. You're probably overpaying for it, as group policies don't do any underwriting, and the younger, healthier people have to pay for the older employees. I know for me, I thought, okay, I've got that box checked. But then...wait....what happens if I leave this job? Then I don't have anything. Looking back, the policy didn't even offer enough to help pay for the house if something had happened. But if someone had come to me and tried to offer a better policy, I would have just ignored them thinking that I was good to go. In reality, there were much better options out there for my and my wife's needs.
One thing we stress in our office to all of our clients is the importance of comprehensive financial planning. After I was done with those loans, I opened a Roth IRA with a guy who only did investments, rather than looking at the whole picture. IRAs and 401(k)s have different limits and options, and it's best to look at them as a whole, to make sure they're balanced, and that they complement each other within your overall financial picture.
That's really the point here - you can check off all the boxes you want, but if the boxes aren't working together toward your individual goals, well, you could be hurting yourself.
So yes. You do need a financial advisor. Take it from me, the guy who thought he knew it all, and then became a financial advisor and realized how much he didn't know. Give us a call anytime. We're always here to help.